Paint industry has bid farewell to the era of high profits

With the development of the Chinese paint industry, paint profits have begun to decline. Faced with a slight profit margin, marking the paint industry is or has been bid farewell to the era of high profits.

"Almost no profit"

It is an indisputable fact that the profits of paint products touch the ceiling and go down. “The lubricity of the paint products is very obvious.” In the interview with reporters, many people in the paint industry (including business people and dealers) have expressed this view.

As for the signs of a decline in paint profits, there is no accurate point in time; the only certainty is that in the past few years, paint profits have been in a downward path. “We have obviously felt the pressure, especially the 2013 corporate profit space is further compressed.” Wang Yiming, director of the Supervisory Board of Anqing Linghu Coatings Co., Ltd., told the reporter.

Not only companies, dealers are not much better. Ding Li, the prime minister of Huashi Coatings, the main engineering coating company in Henan, lamented that it was particularly difficult to do this year, often involving a dozen or even dozens of projects. The order to the end was “almost no profit”. The decline in profits has also led to an increasing frequency of dealer closures in the paint market.

Based on the opinions of multiple interviewees, the main reasons for the erosion of the market are the shrinking market, the shrinking demand, the homogenization of products, the increased competition, the sharp increase in manufacturing costs such as wages, and the difficulty in pulling up the price of products. The combined effect of these factors, paint products to maintain the original high-profit model is almost impossible, will inevitably lead to the decline in profits today.

"The more mature the market economy, the more participating companies will become, and the more fierce competition will be, the lower the profit rate will be, and the more difficult it will be to sell," said Liang Yi.

The truth is actually very simple. According to Xue Hui, general manager of the civilian paint division of Tikkurila (China) Coatings Co., Ltd., the truth is actually very simple: "profit = selling price - cost. The selling price of products is becoming more and more transparent. The lower the cost, the higher the cost, so the profits are bound to decline."

Xue Hui analyzed the reasons in detail. He pointed out that in the past few years, raw material costs (such as titanium dioxide, emulsions, etc.) have rapidly increased, and many production companies have been hampered by upstream raw material companies. However, because the overall price of the raw material industry is rising, and the main raw material companies are basically monopolistic industries, the choice is very small. Therefore, the paint production enterprises can only accept the reality of raw material price increases.

On the other hand, personnel costs are also rising dramatically. Xue Hui gave an example of this: In 2013, a large paint factory in Beijing set a monthly salary of 3,000 yuan, including food and accommodation, bonuses, and conditions for installing air conditioners in the dormitory. Even so, it is still difficult to recruit production workers. However, in 2010, there were countless workers competing for the salary of 2,000 yuan, "it can be seen that the cost of personnel is greatly increased." In addition, as the price of oil rises, the cost of logistics and transportation increases.

“Agents also have similar profit problems. Due to the development of online sales platforms such as Taobao, the retail transaction prices of products are now falling all the way down, and profits have been severely frustrated; all costs have been on the rise: personnel costs, logistics costs, and so on. The delivery price is also rising, so the profit rate has dropped significantly." Xue Hui said.

However, compared with agents, companies, especially large companies, have become the biggest victims of this lucrative slope. "At the same time as the cost increase, the company's sales price (ie, the price of wholesale to the agent) did not increase." Xue Hui said that the current market competition is very fierce, large manufacturers due to cost increases too much, the wholesale price can not be reduced, increased Wholesale prices also run the risk of losing agents, so big manufacturers are now in a dilemma.

Ding Li also confirmed this statement: “Every year there are a lot of new plants opened, (small businesses) they do not have ready-made customers, only to find customers at low prices, impact on some large companies.”

"Nothing fussed"

Who actually pushed the coating company to such a situation today is the result of the economic situation of the industry or the enterprise itself?

For this issue, more people are biased towards the inevitable development of the industry. Wang Yiming believes that the main reasons leading to the decline in paint profits today include the long-term operation of raw material costs and the rapid increase in labor costs, disorderly competition in the coating market, and excessive homogenous competition. In addition, it is also related to the weakness of the global economy and the macroeconomic regulation of the country. Certainly related.

This does not have much difference with Xue Hui's point of view. Including Zhaoqing Qianjiang High-tech Materials Technology Co., Ltd. General Manager Wang Chun, Guangdong Huazibu Chemical Industry Co., Ltd. Chief Operating Officer Guilin, Zhuhai Feiyang New Material Co., Ltd. Chairman Xiao Yang and others also hold a similar attitude. In their view, the decline in profits is an inevitable process for the development of the paint industry today.

"Any kind of industry development will experience a peak profit period. Paint as an industry has already passed this period and it will enter into a reasonable period of profit. This should be in line with industry trends and also conducive to the healthy development of the industry," said Wang Chun.

However, Yang Haibo, Director of Marketing Department of Changzhou Jino Building Materials Technology Co., Ltd., is somewhat different. He thinks that it is not a big fuss to claim that “it is not normal for the paint industry to maintain a huge profit, and only the undeveloped industries will maintain a long-term profitable profit margin.” But he also pointed out that the core of the problem lies not in the industry or market environment, but in Enterprise: “What is the key issue that causes profits to be lubricated, is the lack of market demand, or the decline in the competitiveness of enterprises, or is the operation of the company deviated from the market?”

Yang Haibo pointed out that as far as the current situation is concerned, China is in the period of urban construction development. Coupled with urbanization, there is no problem in market demand. "Obviously, the problem is not in the market, but in the enterprises. Enterprises face profit decline, profit lubricity, should find reasons from their own body, do not take the 'industry downturn, market competition is too fierce' to suffocate himself."

Since the decline in coating profits has become an indisputable fact, how can we protect our profits during the period of declining profits for coating companies? Where are the future outlets?

Whether the landslide is reversible will continue to be lubricated and will continue for at least some time. This is also a common understanding of painters. However, the respondents disagreed on whether this landslide was reversible (referring to profit returning to the previous high level).

Respondents who hold negative views believe that the continuous increase in costs is irreversible. It seems that the cost pressures that have already been imposed on paint companies are almost impossible to reduce, plus the feasible space for fare increase in channels and markets. Limited, so the profit of coatings will continue to decline. “Because of the oversupply of paint, the paint has entered the era of low profit!” said Xiao Yang. Liang Xiao also believes that China’s paint profits are still relatively high and will eventually become the same as the home appliance industry. "This trend is irreversible and an inevitable development of the market economy."

Respondents who hold positive opinions do not dare to be blindly optimistic. They have imposed conditions on the return of high profits. Ding Li’s point of view can summarize their cautious optimism: “The entire industry will readjust itself. After a period of turmoil, the survival of the fittest, and more differentiation and specialization, profits can still come back.”

Regardless of whether the lubricated slope is reversible, it is certain that this time the lubricated slope will continue for quite some time, bringing development pains to the entire paint industry. According to Guilin, “there is always the opposite of extremes, and there are always peaks and troughs in the development of things.” It is precisely the trough. "But this has also prompted the majority of companies to seek breakthroughs and to make full efforts to further stimulate the paint market."

Yang Haibo continued his cool and unique industry observation. He said: “How long it takes to lubricate the slope is not important. The most important thing is how long it will take for the paint industry to really wake up.” He believes that the Chinese coatings market is becoming more and more mature. High profits correspond to high value. “In any industry, high profits will always exist. It is just whether we can create high-value products and services.”

Where does the market demand lubricate slope? How can paint companies and distributors rescue the slightest profit margin?

According to Xue Hui’s opinion, there are still many problems for paint companies. For example, “The characteristics of the use of paint products lead many users who purchase paint products are not end users. They are not excessively concerned about the many properties of paint products. They only focus on products. The price has led to the proliferation of low-end products in the market to replace high-end products."

In addition, the price war is also a common phenomenon spreading in the paint industry. Yang Haibo pointed out that from the perspective of industry development, the price war will definitely have a negative impact on the development of the industry.

Although there are still such problems, but from another point of view, this also shows that there is room for improvement in the paint industry, which also provides the possibility for paint companies to save the continued decline in profits at this stage. This first of all requires the paint industry to improve on current problems. “Only when our coating industry as a whole regulates, conducts inventory of small-scale workshops, cracks down on counterfeiting companies, and protects formal enterprises, so that the overall price of coatings can be improved, the crisis can be alleviated.” Xue Hui said .

“Only value competition can improve the industry's development to a higher level, and it can maintain the overall industry profitability at a reasonable level.” Yang Haibo’s suggestions for improvement are based on the view that his proposed price war will hurt the development of the industry: “ The paint industry is not a cash cow, selling coatings yesterday to make money, selling value today to make money, what is the market demand, what can you bring to your customers, and where is your value?”

Yang Haibo took the rise of Jiunuozheng Shiqi as an example and pointed out that branding is not about knowledge, but about the line; consumers will only become more rational and the market will become more and more mature: “How to create value for customers that exceed their expectations is our thinking. Most problems.” “The decline in profits is not terrible. The most terrible idea and concept of ours cannot really be lifted up. The future market needs innovation and value, not low price.”

Then how should the dealers do? Ding Li said that if dealers want to improve profit margins, the only way is for everyone to play team cards, that is, distributors, distributors, and manufacturers all stand on the same front, and there are projects for everyone to overcome. Only everyone warms up to overcome difficulties.

Innovation has its way out. Correcting the more obvious issues in the industry at the moment can only buffer the immediate decline in profits. However, for the long-term revival of paint profits, this is just a basic job.

“The paint company can only have a way out if it is constantly innovating.” Wang Yiming's words tell the truth about boosting paint profits.

In Xue Hui’s words, the most prominent drawback of the current coating companies is the lack of technological innovation capability and the lack of “three high” products. “Especially for large companies, we must focus on improving the technological capabilities of our own companies, improve the competitiveness of our products, and increase the sales prices of our products. In addition, we can increase the competitiveness of our brands by attracting customers by improving our after-sales service capabilities. Can improve the profitability of their own companies."

Then how should companies innovate? For this issue, several respondents gave their companies the measures they adopted, including the standardization of production processes, the upgrading of product technology formulas, the upgrading of core products, and the development of differentiated new products. Constantly develop new products to adapt to the market. However, as Yang Haibo said, the so-called innovation measures of enterprises “do not lie in knowledge but in practice”.

In Yang Haibo's view, there is always the possibility that the paint industry will increase profits. “The key to improvement is still to fully understand the market demand. The nature of the enterprise is to deviate from the market demand. Only by restraining ourselves from the impulse of customers, can we truly perceive customer needs and find ways to improve.”

Liang Hao said that if companies want to improve, they can only be stronger than ordinary competitors. For example, improve product quality, develop new products with selling points, improve customer service systems, rationalize sales channels, and so on. But he also pointed out, "Of course this is difficult, because every competitor is doing it."

In interviews with reporters, respondents from multiple paint companies tried to explain that their companies effectively avoided the impact of falling profits in the context of falling profits. However, at the point of time when the paint companies have just passed the profit turning point, how the future development trend will evolve, I am afraid that no one company can guarantee that it will be the “survivor”. Obviously, it is not yet time to sing hymns. It should be that “comrades still need to work hard”.